Marissa Mayer Has Done Everything Right (So Far)

Most corporate earnings conference calls are dry, staid affairs, the sort of thing you pay half a mind to while coming up with snarky quips on Twitter. Yahoo’s second-quarter earnings call, which coincided with CEO Marissa Mayer’s one-year anniversary at the firm, was anything but. First, it wasn’t a call—it was a video webcast, with Mayer and chief financial officer Ken Goldman sitting at a desk in front of a camera, aping a couple of rookie local news anchors.

And Mayer wasn’t offering a report so much as an argument. The numbers she’d come to present weren’t exactly glowing: Yahoo’s revenue fell 7 percent from the same quarter last year, with its largest business, display ads, falling 11 percent. But the numbers were almost a side note in Mayer’s presentation; her real goal was to convince the market that her plan to remake Yahoo won’t work overnight, and that she needs more time.

At first, I was skeptical. The webcast seemed of a piece with so much else Mayer has done at the struggling firm: It was flashy but lacked substance, seemingly intended to distract us from Yahoo’s problems rather than address them head-on. But as Mayer got into her argument, something dawned on me. For Mayer, unlike for Sprite, image is everything. Investors, potential employees, and rival tech firms have long thought of Yahoo as a joke, not a viable player in the tech wars. For Mayer, Yahoo’s terrible rep isn’t a symptom of the company’s larger problems, but a cause. Her moves so far—for instance, buying a whole bunch of buzzy startups without much explanation of how they’ll contribute to Yahoo’s bottom line, including the $1.1 billion purchase of Tumblr—have all been aimed at remaking the idea of Yahoo. Fix the reputation first, make Yahoo look good again, and the fundamentals will follow, she argues.

You know what? She may be right. Mayer calls her plan a “chain reaction,” and it goes like this: First, Yahoo needs to hire better employees, and it needs to stop hemorrhaging its best employees to rival firms. Once it does that, it will be able to build better products. Better products will lead to more traffic to Yahoo’s sites, which, finally, will result in revenue growth. She’s got this strategy down to a mantra: “People, then products, then traffic, then revenue,” she said on the webcast.

It’s a solid theory. In the Web business, unlike in many other industries, the quality of your product is essentially a straight-line function of your ability to hire and retain the best people. Every tech CEO I’ve ever interviewed has described hiring as his most difficult challenge, and fashioning a company’s “culture” as his primary day-to-day job. A great corporate culture doesn’t guarantee success; companies that are fun places to work fail all the time. But tech companies with terrible cultures—companies where people hate going into the office every day—are doomed. A necessary precondition of success is getting the culture right.

Mayer presented convincing evidence that she’s done just that. In the year that she’s been at the firm, Yahoo’s attrition rate—the rate at which people voluntarily leave the firm—has declined by nearly 60 percent, she said. Even more telling, the number of former employees who are coming back to Yahoo is growing: Twelve percent of employees hired in 2013 were folks returning to Yahoo. These people probably know a lot of people at the firm, and they wouldn’t be coming back if they believed the place was still consumed by rot. The company now receives as many as 10,000 resumes every week. That’s nothing compared to the number of people who apply to Google, but Mayer suggested it’s a huge upswing from Yahoo’s dog days. (In February, I excoriated Mayer’s decision to prohibit Yahoo employees from working from home. I still think she was wrong to do so, but by these numbers, it’s clear that decision didn’t negatively impact Yahoo’s appeal, as I’d predicted it would. Mea culpa.)

The second step in Mayer’s chain reaction is also taking shape. The more efficient, more productive corporate culture has led to a string of product redesigns, including a huge rehabilitation of Flickr. I haven’t been impressed with many of these new products, but they’ve clearly worked to bring in new people. Yahoo’s traffic has long been declining, but in 2013, traffic has upticked steadily, Mayer said; since June, the company’s traffic has been growing over the same period last year. This may sound simple, but turning around sinking traffic is a difficult trick to pull off—and according to Mayer, Yahoo may be the first big Web company to do it. “Renewed traffic growth in the face of multiple years of decline is, to my knowledge, unprecedented among industry players that operate with billions of page views,” she said. “And we’ve achieved just that.”

The larger question is whether Yahoo can sustain this growth, and its improved morale. Many of Yahoo’s products were in a terrible state when Mayer took over a year ago. She’s brought them to parity with rivals. That’s no small thing, but it doesn’t say much about whether Yahoo can beat the competition with apps and services that are truly groundbreaking. It’s also possible that the improvement in the culture at Yahoo is a response to Mayer’s hiring—she was a much bigger name than anyone at Yahoo had expected to get as CEO. If that’s the case, how long can morale preserve itself? Will people continue to be as happy there if the financials don’t improve quickly?

In other words, Mayer can’t fake success forever. The next year is sure to be rockier, and more telling of her long-term success, than the first one. For now, though, she deserves kudos.